Missing Participants and Minimum Distributions?



Plan sponsors are obligated to ensure participants receive their benefits on schedule. This includes following the Department of Labor’s guidance for arranging for missing participants to receive their requirement minimum distributions. Failure to make every effort to do so has stiff consequences.


DOL Guidance on Missing Participants?

If you did not dig into the Department of Labor’s  2021 release of guidance on missing participants, be sure to do so now. Specifically, the Employee Benefits Security Administration (EBSA) instructed retirement plan fiduciaries to:


  • Maintain complete and accurate census information.
  • Communicate with participants and beneficiaries about their benefit eligibility.
  • Implement effective policies and procedures to locate missing participants and beneficiaries.


EBSA’s guidance is in three parts, available here: Best Practices; Compliance Assistance; and, Field Assistance Bulletin.


Stiff Penalties

Experts encourage plan sponsors not to wait until it’s time to make distributions before beginning to identify missing participants. Remember, the Internal Revenue Service (IRS) requires plan sponsors to follow specific disbursement schedules: A participant who has deferred salary amounts to an employer-sponsored retirement plan is required to start taking distributions—depending on which is later and the plans rules—by April 1 of the calendar year in which the participant retires or the calendar year in which the participant turns 72.” Plan Sponsor shares this advice about arranging for missing participants to receive their required minimum distributions (RMDs):


Retirement plan sponsors and service providers are responsible for finding missing participants to arrange required minimum distribution payments, and they face potential penalties if they fail, according to industry experts. Sponsors must make all possible efforts to find those participants, as directed by IRS guidance and Department of Labor best practices. Failure to do so can lead to the plan losing its favorable IRS tax treatment and could even end in plan disqualification, says Kim Couch, a partner at Verrill Dana, a New England-based law firm. She advises that plan sponsors should not wait to find any missing participants who are eligible for RMDs until its too late to act. “Plan sponsors need to get on it,” Couch says. They need to get on it now. On the IRS side, you have a qualification issue if youre not making timely required minimum distributions. If it happens that a participant doesnt get it, they also receive a 50% excise tax on the amount that they would receive.”


Portability and Protection

Retirement plan portability seems to be a good idea whose time has come! It is easy to see, for example, how supporting outgoing employees to transition their retirement accounts, a practice known as “assisted rollout,” is good for both people and business. In addition to helping people stay on a financially healthy path to retirement, portability is also a proactive way for plan sponsors to avoid costly missing participant issues down the road. As 401k Specialist Magazine  sums up: “Initiatives that facilitate portability are the hot new trend for plan sponsors, since they not only reduce fiduciary risk but make significant, quantifiable contributions to employee financial wellness programs by preserving retirement savings.” 


Of course even the most diligent plan sponsor, following all regulations and best practices, can never fully eliminate the fiduciary risks associated with the role. In fact,  with ERISA lawsuits are on the rise, the U.S. Chamber of Commerce points out that there’s been an increase in the cost of fiduciary liability insurance—making it harder for plan sponsors and other fiduciaries to secure protection. Colonial Surety is here to help. As a longstanding and trusted national provider of ERISA fidelity bonds, we’re committed to ensuring that plan sponsors from small and mid-size businesses can afford protection.


Colonial’s annual premium for fiduciary liability insurance costs less than just one hour with an ERISA lawyer if disaster strikes, and arms you with defense costs and penalty limits up to $1,000,000 in the event of a covered lawsuit. We even include 50,000 of basic cyber liability insurance, lock in multi-year rates and offer installation payments.


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Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country. Serving customers since 1930, we are the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. With a Trustscore of 4.8, we help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time.